1 TAXATION

NATURE, SCOPE, CLASSIFICATION, AND ESSENTIAL CHARACTERISTICS Taxation is an act, process, or means by which the sovereign (Independent State) through its law-making body (legislative branch of the government) makes demand for revenue in order to support its existence and carryout its legitimate objectives.

Explain the nature of taxation power The power of taxation generally refers to the

combination of the following natural qualities. 1. Inherent power of Sovereignty 2. Essentially a legislative Function 3. For Public Purposes 4. The strongest of all the inherent powers of the State 5. Subject to International Treaty or Comity 6. Normally Payable in Money 7. Territorial in Scope

Definition: 1. Inherent power of Sovereignty the power of taxation is co-extensive with sovereignty. It is existing inseparably with the State. The government could exercise this power even without any provision in the Constitution mentioning it.

2 a. Taxation begins its existence from the time a state is born with the concurrence of its four elements which are people, territory,

sovereignty and government. 2. Essentially a legislative Function The Law-making body of the government and its political subdivisions exercise the power of taxation. 3. For Public Purposes Taxes are public money, and its appropriation to be valid must be for the common good of the people, such that no individual or particular entity shall primarily be enriched or benefited from its use. 4. The strongest of all inherent powers of the State Without money, the government cannot exist

permanently and cannot dispense and exercise any of its powers and / or functions for its people. a. In the absence o the limitations provided by the Constitutions, the power of taxation is unlimited, complete, and supreme. The

members of the law-making body could impose taxes on things and rights at appropriate rates within boundaries of its inherent restrictions. 5. Subject to Inherent International Treaty or Comity As a matter of international courtesy, property of a foreign state may not be taxed by another state based on principle of sovereign equality among states of international law. One state cannot exercise its sovereign dominion over another, therefore, a

3 nation cannot impose enforced contribution to the properties of other nations. 6. Normally payable in Money Taxes are contributions normally payable in the form of money. 7. Territorial in Scope As a rule, tax laws do not operate beyond a countrys jurisdictional limits

unless there exists a privity of relationship between the taxing State and the object of the tax. Where privity of relationship exists, the state can still exercise its taxing powers over its citizens outside its territory because the personal jurisdiction of his government over him still remains.

What is the basis of taxation?

Taxation is based on necessity and reciprocal duties of protection and support between the state and its inhabitants. Taxation is the lifeblood or the bread and butter of the government. Therefore, it is

necessary that every citizen must pay his taxes. The government cannot exist without means to pay its necessary expenses. The citizen pays taxes to support the government in order that he may continuously be sustained with security and benefits of an organized society.

PURPOSE OF TAXATION

4 What are the two main purposes of the exercise of taxation power? Taxation power is exercised for two main purposes; to raise revenue (fiscal) and to regulate certain activities or consumption (regulatory).

a. Fiscal purpose taxes are imposed primarily to raise the necessary revenue to finance various activities of the government in the promotion of the general welfare and promotion of the public. b. Regulatory purpose taxation power could also be exercised to regulate inflation, achieve economic and social stability, and to serve as a key instrument for social control.

STAGES (ASPECTS) OF TAXATION

What are the three (3) stages of taxation process? a. Levy or imposition aspect b. Assessment aspect c. Collection

Definition: a. Levy pertains to the passage of tax laws and tax ordinances to legislature b. Assessment refers to the appraisal and valuation process of the subject or object of taxation to arrive at total amount of collectible tax.

5 c. Collection involves the effective administrative implementation of obtaining payment of tax from the taxpayer.

Which of the aspects of taxation process could not be delegated to other branches of the government?

The levying or imposition aspect of taxation could not in anyway to be delegated and which should be exclusively exercised by the law-making body; while the other stages of taxation may lawfully be delegated to other branches of the government. The collection aspect of taxation could even be delegated to private entity.

BASIC PRINCIPLES OF A SOUND TAXATION SYSTEM

What are the three basic principles of a sound taxation system? The taxation to be effective is guided by three basic principles a. Fiscal Adequacy b. Theoretical Justice c. Administrative Feasibility Definition 1. Fiscal Adequacy which requires that the sources of government revenue should be capable of raising the amount that should be

6 sufficient to meet the demand of public

expenditures regardless of business condition. 2. Theoretical Justice which requires that the tax burden must be proportionate to the

taxpayers ability to pay. 3. Administrative Feasibility which should

enable the system to conveniently implement a just and an effective tax administration.

LIMITATIONS OF THE POWER OF TAXATION

Taxation is the most supreme among the inherent powers of the government. Could taxation be regarded as an absolute power which the government could exercise without restriction? No. Although the power of taxation is supreme, plenary and comprehensive, it is till subject to some inherent and constitutional limitations.

What are the inherent limitations on the exercise of power of taxation? 1. It is exercised primarily for public purposes. 2. It is legislative in nature (non-delegation of the legislative power) 3. Its exercise limited to the territorial jurisdiction of the state. 4. It honors and gives due respect to international comity.

What

are

the

constitutional

limitations

on

the

exercise of power of taxation? 1. Due process of law 2. Equal protection of law 3. Rule of uniformity and equity in taxation 4. Non-impairment of obligations and contracts 5. Non-imprisonment for non-payment of poll tax 6. Presidents power to veto tax bills 7. Non appropriation for religious purposes

SIMILARITIES AND DISTINCTION AMONG INHERENT POWERS OF THE GOVERNMENT

What

are

the

three

inherent

powers

of

the

government? The following powers are inherent to the existence of the government: 1. Taxation power a power by which an

Independent Sate, through its law-making body, raises and accumulates revenue from its

inhabitants to pay the necessary expenses of the government. 2. Police power a power of the Sovereign State to legislate for the protection of the health, welfare and morals of the community.

8 3. Eminent domain a power of the Sovereign State to take private property for a public purpose even without the owners consent.

What are the three basic similarities of the three inherent powers of the government? 1. Inherent to the existence of the government 2. Exercised for public purposes 3. Legislative in nature and character 4. Presuppose equivalent compensation 5. All underlie and exist independently on the

Constitution, but their exercise can only be limited by the Constitution. 6. All are necessary attributes of the Sovereign State

What are the basic distinctions of the three inherent powers of the government? 1. Police power is broader than taxation and eminent domain because it involves a general power to make and implement laws. 2. The law on public service or public utility entity may grant eminent domain while police power and taxation power are to be exercised only by

government units. 3. Both taxation and eminent domain are limited by the non-impairment clause in the Constitution, but not police power.

9 4. The exercise of police power merely restricts the use of property, while eminent domain requires the take over of specific property. In taxation, now specific property is being taken, because this requires payment, generally in money. 5. The exercise of eminent domain requires payment of just compensation to the private property owner, while in taxation and police power, the government has to receive tax or fee for its exercise.

SITUS OF TAXATION

What is situs of taxation? Situs of taxation refers to the place of taxation, or to the State or political unit which has jurisdiction to impose tax.

The following are the factors which are determinant to the situs of taxation 1. Citizenship of the taxpayer 2. Residency of the taxpayer 3. Nature, kind or classification of tax being imposed 4. Subject or object of taxation 5. Source of income 6. Place of exercise, business or occupation being taxed

Additional Note: The following situs of taxation apply a. Persons- residence of the taxpayer

10 b. Real property or tangible personal property location of the property c. Intangible personal property as a rule, situs is the domicile of the owner unless he has acquired a situs elsewhere d. Income Taxpayers residence or citizenship, or place where the income was earned. e. Business, occupation and transaction place where business is being operated, occupation being practiced and transaction completed f. Gratuitous transfer or property taxpayers residence or citizenship, or location of the porperty

NATURE, CHARACTERISTICS, KINDS OF TAXES

What does the term taxes means? Taxes are obligations created by law. These are civil liabilities of the taxpayer which may give rise to his criminal liability if he refuses to pay. Taxes are the lifeblood of the government because these are main sources of government revenues. These are forced

contributions from those who are receiving protections directly or indirectly from the government to support its multiple functions.

What are the characteristics of taxes?

11 1. A forced contribution 2. Proportionate in character 3. Imposed by the legislative boy 4. Generally payable in money 5. For public purposes 6. Levied on person, property or right 7. Imposed by the sovereign state which has jurisdiction What are classifications of taxes? 1. Local and national, as to authority collecting it 2. Direct or indirect, as to who bears the burden 3. Specific and advalorem, as to determination of the amount 4. Fiscal and regulatory, as to purpose 5. Personal, property, or excise, as to object 6. Proportionate, prorgressive and regressive as to rate

TAX INVASION AS DISTINGUISED FROM TAX AVOIDANCE

What is the main distinction between tax avoidance and tax invasion? a. Tax avoidance is the legal means to lessen or totally eliminate the tax liability. i. Examples are tax shifting,

transformation, and other exercise of

12 legal options, which reduce the tax burden. b. Tax evasion is the illegal means to reduce tax payment. i. Example is the willful understatement of the income or the overstatement of deductions from what is lawfully ii. authorized or permitted.

DOUBLE TAXATION

Double taxation is an act by the sovereign of taxing twice for the same purpose in the same year upon the same property or the same person with the same nature or character of tax.

What are the classifications of double taxation? a. Direct duplicate taxation This is double taxation in its strict sense. It is prohibited because it consists imposition of the same tax on the same property for the same purpose by the same State during the same taxable period. b. This kind of double taxation violates the constitutional provision of uniformity and equal protection, as well as the principle that tax must not be excessive, unreasonable and

13 equitable. Therefore, such taxation should, whenever and wherever possible, be avoided to prevent injustice or unfairness. c. Indirect duplicate taxation This is double taxation in its broad sense. It extends to all cases in which there is a burden of two or more pecuniary impositions. It is usually allowed as long as there is no violation of equal protection and uniformity clauses of the Constitution.

TAX ADMINISTRATION

What

are

the

main

agency

implementing

the

National Internal Revenue Laws? The Bureau of Internal Revenue is the

administrative agency of the government in charge with the primary function of administering the National Internal Revenue laws and regulations. It is responsible for the collection of National Internal Revenue taxes. It is under the executive supervision and control of the Department of Finance. The Internal Revenue Commissioner heads it (Sec. 2)

What

are

the

powers

of

the

Commissioner

of

Internal Revenue? 1. To interpret tax laws and to decide on tax cases. 2. To obtain information, to summon and take testimony to effect tax collection

14 3. To make assessment and prescribe additional requirements enforcement a. Examination of returns and determination of tax due. b. Failure to submit required returns, for tax administration and

statements, reports and other documents c. Authority surveillance to conduct and inventory-taking, presumptive

prescribe

gross sales and receipts d. Authority to terminate taxable period. e. Authority to prescribe real property values. f. Authority of the Commissioner to inquire deposit accounts g. Authority agents. h. Authority of the Commissioner to prescribe additional requirement procedural or documentary to accredit and register tax

Source: COMPREHENSIVE REVIEW OF TAXATION SEVENTH EDITION 2000 BY: HECTOR S. DE LEON

15